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Home > Investing > Another Dividend Reinvestment Option

Another Dividend Reinvestment Option

December 20th, 2011 Leave a comment Go to comments

Dividend reinvestment is a secret that dividend investors use to increase their investment returns. It can turn the return of an otherwise ordinary investment into a market beating one. Here’s an example using a very well known stock, Coca Cola. OK, you probably have an uncle who has owned this for thirty years and has a monster return that he gloats about every year at your family holiday party. Anyone who has owned a high quality large cap stock for that long is gonna have a great return.

But what about the last ten years?

For this period, it’s been rough. KO and companies like it have done everything right: increased earnings, revenue and expanded into new markets. Unfortunately, the market priced into these companies growth that never measured up to the P/E ratios assigned to them 10-15 years ago. So, the stocks have been playing catch up ever since.

But if you own KO, how did you do? Let’s say you bought it sometime in 2000, for $55/share. Then in 2010, you look up the quote for KO and see it hasn’t moved anywhere: it’s the same $55. No return?

Not exactly, you made approximately 20% collecting dividends. If you had reinvested dividends back into KO you would have had more than twice the return, about 45% as seen below:

This return is nothing to gloat about but you did make money on a stock whose price didn’t move in ten years. But you needed to chose to reinvest dividends it doesn’t happen automatically.

Make A Choice

So, my point for today is to do something with your dividends. Anything, but decide something. Here are your options:

  • Automatic Broker Reinvestment -Ask your broker!
  • Direct Stock Purchase Plan (DSPP) Reinvestment – Tell your transfer agent what to do.
  • Manually Reinvest Dividends – You are on your own.
  • Automatic Company Reinvestment – This one is kind of rare, see below.
  • Spend Them! Hey, it’s a choice!

A Few Words About Automatic Company Reinvestment

To make it even easier to invest some companies will do it for you automatically! This is a reinvestment option that is rare I found only a few companies that offer it. There isn’t any option in these investments, when you buy them they automatically reinvest as a feature of ownership. Also, the method they do it comes in two ways: stock split or dividends paid in stock. So, they split their stock every quarter to reflect part of the dividend distribution or they pay a dividend in stock.

Here are a few that I found:

Vector Group Ltd. (Public, NYSE:VGR)

Vector Group distributes part of the its dividend each year as a ’21:20 stock split’ (effectively 5% return).

Vector Group Ltd. is a holding company. The Company is principally engaged in the manufacture and sale of cigarettes in the United States through its Liggett Group LLC (Liggett) and Vector Tobacco Inc. (Vector Tobacco) subsidiaries, and the real estate business through its New Valley LLC subsidiary, which focuses to acquire additional operating companies and real estate properties.

Kinder Morgan Management, LLC (Public, NYSE:KMR)

KMR distributes its dividend as shares each quarter. If you want to get an equivalent dividend in cash invest in NYSE:KMP.

KMR operates in five business segments: Natural Gas Pipelines, Products Pipelines, CO2, Terminals and Kinder Morgan Canada. The Company owns or operates more than 37,000 miles of pipelines and 180 terminals in North America. Its subsidiary includes Kinder Morgan Services LLC.

Enbridge Energy Management, L.L.C. (Public, NYSE:EEQ)

EEQ distributes its dividend as shares each quarter.

Enbridge Inc. (Enbridge) is engaged in energy transportation and distribution. Enbridge conducts its business through five operating segments: Liquids Pipelines; Gas Distribution; Gas Pipelines, Processing and Energy Services; Sponsored Investments, and Corporate.

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  1. December 20th, 2011 at 08:42 | #1

    Holding EEQ and KMR is also a better alternative to holding their MLP equivalents in a tax-deferred account. (a nice side effect).

  2. December 20th, 2011 at 18:53 | #2

    Thanks moneycone for stopping by. These MLPs try hard to give investors good options. This is one of the reasons why I like them.